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Testimony:
Before the Subcommittee on Health, Committee on Veterans' Affairs,
House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Thursday, October 15, 2009:
VA Health Care:
Ineffective Medical Center Controls Resulted in Inappropriate Billing
and Collection Practices:
Statement of Kay L. Daly:
Director:
Financial Management and Assurance:
GAO-10-152T:
GAO Highlights:
Highlights of GAO-10-152T, testimony before the Subcommittee on Health,
Committee on Veterans' Affairs, House of Representatives.
Why GAO Did This Study:
GAO was asked to testify on billing practices of the Department of
Veterans Affairs (VA). GAO previously reported that continuing problems
in billing and collection processes at VA impaired its ability to
maximize revenue from private insurance companies (third-party
insurers). In June 2008, GAO reported on its follow-up review that (1)
evaluated VA billing controls, (2) assessed VA-wide controls for
collections, and (3) determined the effectiveness of VA oversight over
third-party billings and collections.
To perform the review, GAO conducted case-study analyses of the third-
party billing function at 18 medical centers, statistically tested
controls over collections VA-wide, and reviewed current oversight
policies and procedures. GAO reported the results of this review in GAO-
08-675.
What GAO Found:
In June 2008, GAO reported that its case-study analysis of unbilled
patient services at 18 medical centers, including 10 medical centers
with low billing performance and 8 medical centers under VA’s
Consolidated Patient Account Centers (CPAC) initiative considered to be
high performers, found documentation, coding, and billing errors and
inadequate management oversight that resulted in unbilled amounts. The
total amount that VA had categorized as unbillable in fiscal year 2007
for these 18 case-study medical centers was approximately $1.7 billion.
Although some medical services are not billable, such as service-
connected treatment, management had not validated reasons for related
unbilled amounts of about $1.4 billion to assure that all billable
costs are charged to third-party insurers.
GAO also found excessive time to bill and coding errors. The 10 non-
CPAC medical centers reported average days to bill ranging from 109
days to 146 days in fiscal year 2007, compared to VA’s goal of 60 days,
and significant coding and billing errors and other problems that
totaled over $254 million or 21 percent of the total in unbilled
medical services costs at those centers. Although GAO determined that
CPAC officials performed a more thorough review of billings, GAO’s
analysis of unbilled amounts for the 8 CPAC centers found problems that
accounted for $37.5 million, or about 7 percent, of the total unbilled
medical services costs.
GAO’s June 2008 report identified significant percentages of cases
where required follow-up was not done. These are considered to be
control failures. VA guidance requires medical center accounts
receivable staff to make up to three follow-up contacts, as necessary,
on outstanding third-party insurer unpaid bills, which were $600
million as of September 2007. As shown in the table below, GAO’s
statistical tests of a random sample of fiscal year 2007 third-party
bills identified high control-failure rates related to the requirement
for initial, second, and third follow-ups with third-party insurers on
unpaid amounts.
Table: Estimated Control Failures on Timely Follow-up on Unpaid Bills:
Required follow-up: Initial;
VA-wide centers: 69%;
CPAC centers: 36%;
Non-CPAC centers: 71%.
Required follow-up: Second;
VA-wide centers: 44%;
CPAC centers: 23%;
Non-CPAC centers: 45%.
Required follow-up: Third;
VA-wide centers: 20%;
CPAC centers: 22%;
Non-CPAC centers: 17%.
Source: GAO analysis of VA data.
Notes: Tests are of a VA-wide random-probability sample of third-party
accounts-receivable data. Failure rates are based on the lower bound of
GAO’s two-sided, 95 percent confidence interval.
[End of table]
GAO also reported in June 2008 that VA lacked policies and procedures
and a full range of standardized reports for effective management
oversight of VA-wide third-party billing and collection operations.
Further, although VA management has undertaken several initiatives to
strengthen processes and controls and enhance third-party revenue, many
of these initiatives are open-ended or will not be implemented for
several years.
What GAO Recommends:
In its June 2008 report, GAO made seven recommendations to improve VA’s
third-party billing and collection processes, including actions to
improve (1) third-party billings, (2) follow up on unpaid amounts, and
(3) management oversight of billing and collections. VA concurred with
all seven recommendations and noted steps it was taking to address
them. GAO will follow-up to determine whether, and if so, to what
extent, VA has taken action to address our recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-152T] or key
components. For more information, contact Kay L. Daly at (202) 512-9095
or dalykl@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss our prior work on the
Department of Veterans Affairs' (VA) controls over medical center
billings and collections. The department provides health care to
eligible veterans through a system of Veterans Health Administration
(VHA) medical facilities that constitute one of the largest health care
systems in the world. VA is authorized[Footnote 1] to provide certain
medical services to veterans with nonservice-related conditions and to
recover some of the cost of providing these additional benefits through
billing and collecting payments from veterans' private health insurers,
commonly referred to as third-party insurers.[Footnote 2] VA can also
use these third-party health insurance collections to supplement its
medical care appropriations. VA third-party billing and collection
operations are carried out through a nationwide network of 153 medical
centers, 801outpatient clinics, and 135 nursing homes, residential
rehabilitation treatment programs, and readjustment counseling centers.
VA reported in its fiscal year 2008 performance and accountability
report that about 5.5 million people received treatment in VA health
care facilities, and VA collections for health care services totaled
nearly $2.4 billion.[Footnote 3]
Since 2001 we have reported that continuing weaknesses in VA billing
processes and controls have impaired VA's ability to maximize the
collections received from third-party insurers.[Footnote 4] Most
recently, in June 2008 we reported[Footnote 5] on VA's ineffective
controls over medical center billings and collections. My testimony
today summarizes the findings of our June 2008 report that are most
relevant to the subject of today's hearing. Specifically, I will focus
on our findings concerning (1) the effectiveness of VA medical center
billing processes at selected locations, (2) VA controls for performing
timely follow-up on outstanding third-party receivables, and (3) the
adequacy of VA oversight of billing and collection processes.
To achieve our first objective, we used a case study approach to assess
billing controls because VA did not have centralized data on third-
party billings. For our case studies, we selected the 10 medical
centers with the highest numbers of days to bill (lowest billing
performance) and the 8 medical centers under the Consolidated Patient
Account Center (CPAC)[Footnote 6] management initiative for
regionalized billing and collection activity that were expected to be
high performers. To achieve the second objective, we tested controls
for timely collection follow-up and documentation of contacts on third-
party bills using a VA-wide statistical sample, and stratified subsets
of our VA-wide sample for CPAC medical centers and medical centers that
were not under the CPAC initiative. To address our third objective on
VA management oversight capability, we reviewed management reports
generated by key VA systems and interviewed medical center and VHA
officials about their oversight procedures.
We conducted the work for the June 2008 report on which this testimony
was based from January 2007 through May 2008 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provided a reasonable basis for our findings and conclusions
based on our audit objectives.
Case Study Medical Centers' Weaknesses Resulted in Underbillings of
Third-Party Insurers:
Our 2008 report found significant internal control weaknesses and
inadequate management oversight that limited VA's ability to maximize
collections from third-party insurers. Our 18 case studies included 10
medical centers with reported low billing performance and the 8 medical
centers under the CPAC management initiative for regionalized billing
and collection activity that were expected to be high performers. Our
case study analysis of unbilled patient services at 18 case study
medical centers found excessive average days to bill, coding and
billing errors, and a lack of management oversight, which raised
questions about why $1.7 billion was not billed to third-party insurers
at the 18 locations we reviewed. It is important that coding for
medical services is accurate and timely because insurers will not
accept improperly coded bills. Moreover, many insurers have national or
regional contracts with VA that bar insurer liability for payment of
bills received after a specified period of time after the date that
medical services were provided, usually 1 year, but sometimes as little
as 6 months.
There are valid reasons why some medical services are not billable,
including service-connected treatment, Medicare coverage, and the lack
of private health insurance coverage.[Footnote 7] In fiscal year 2007,
the 18 medical centers we reviewed had $1.4 billion in unbilled amounts
in these categories. We found that medical center management at all 18
of our case study locations did not always validate the reasons these
amounts were unbilled.
At the 10 non-CPAC medical centers we reviewed, we identified low
billing performance including average days to bill ranging from 109
days to 146 days in fiscal year 2007, compared to VA's goal of 60 days.
We also found these centers had significant documentation, coding, and
billing errors and performed little or no management oversight of the
billing function. As illustrated in figure 1, omissions in
documentation ($10.4 million), the use of inaccurate clinical service
codes ($48.3 million), and other undefined reasons ($195.4 million)
accounted for over $254 million, or 21 percent, of the $1.2 billion in
total unbilled medical services costs at the 10 non-CPAC medical
centers. The largest group of billing errors included $25 million for
which the billing time frame had expired. Managers at the 10 non-CPAC
medical centers did not perform adequate reviews of the services
assigned to these categories to ensure that billing clerks
appropriately classified them. While not the focus of our audit, such
reviews are also critical for effectively identifying and addressing
any overbillings.
Figure 1: Fiscal Year 2007 Unbilled Amounts by Reason for 10 Medical
Centers with the Largest Elapsed Days to Bill:
[Refer to PDF for image: pie-chart]
Documentation errors: 1%; $10.4 million;
Coding and billing errors: 4%; $48.3 million;
Service-connected not billable: 10%; $115.8 million;
Other: 16%; $195.4 million;
Nonservice-related not billable: 69%; $835.3 million.
Source: GAO analysis of 10 case study medical centers’ Reasons Not
Billable data.
[End of figure]
Our case study analysis of the eight medical centers under the CPAC
initiative, with $508.7 million in unbilled amounts, found that CPAC
officials performed a more thorough review of the billing function. Our
analysis of fiscal year 2007 unbilled amounts for the eight CPAC
centers showed that these centers' average days to bill ranged from 39
days to 68 days, compared to VA's 2007 goal of 60 days. As illustrated
in figure 2, CPAC centers' documentation errors ($4.2 million), coding
and billing errors ($21.4 million), and other undefined reasons ($11.9
million) accounted for $37.5 million or about 7 percent of medical
services costs that were not billed to third-party insurers.
Figure 2: Fiscal Year 2007 Unbilled Amounts by Reason for Eight Medical
Centers under CPAC:
[Refer to PDF for image: pie-chart]
Documentation errors: 1%; $4,2 million;
Other: 2%; $11.9 million;
Coding and billing errors: 4%; $21.4 million;
Service-connected not billable: 13%; $65.0 million;
Nonservice-related not billable: 80%; $406.2 million.
Source: GAO analysis of 8 CPAC case study medical centers’ Reasons Not
Billable data.
[End of figure]
Medical Centers Have Not Followed VA Policy for Timely Follow-up and
Documentation on Unpaid Third-Party Receivables:
Our June 2008 report identified significant problems related to timely
follow-up and documentation of contacts with third-party insurers on
actions to collect outstanding receivables. VA policy[Footnote 8]
requires medical center accounts receivable staff to make up to three
follow-up contacts, as necessary, on outstanding third-party
receivables, which were $600 million as of September 25, 2007.
Our statistical tests[Footnote 9] of a stratified random sample of 260
fiscal year 2007 third-party bills identified high percentages of cases
where required follow-up was not done, which is considered to be a
control failure. These high control failure rates occurred VA-wide, in
CPAC and non-CPAC medical centers, as shown in table 1. For example,
our tests for the required initial follow-up showed a failure rate of
69 percent VA-wide, 36 percent for CPAC centers, and 71 percent for non-
CPAC centers.
Table 1: Estimated Failure Rates for Controls on Timely Follow-up on
Unpaid Third Party Insurer Receivables:
Required follow-up: Initial, 45 days;
VA-wide medical centers: 69%;
CPAC medical centers: 36%;
Non-CPAC medical centers: 71%.
Required follow-up: Second, 21 days after first contact;
VA-wide medical centers: 44%;
CPAC medical centers: 23%;
Non-CPAC medical centers: 45%.
Required follow-up: Third, 14 days after second contact;
VA-wide medical centers: 20%;
CPAC medical centers: 22%;
Non-CPAC medical centers: 17%.
Source: GAO analysis of VA data.
Notes: Tests are of a VA-wide random-probability sample of third-party
accounts-receivable data. Failure rates are based on the lower bound of
our two-sided, 95 percent confidence interval. Our sample included
bills over $250.
[End of table]
The failure to make timely follow-up contacts and delays in initiating
contacts with third-party insurance companies on unpaid amounts
increase the risk that payments will not be collected, or that payments
will be substantially delayed. Of the population of fiscal year 2007
billings that were used for our stratified random sample, VA had
collected about 47 percent as of September 25, 2007.[Footnote 10] Our
analysis of accounts receivable aging data showed that 6.25 percent of
the receivables balance as of the end of fiscal year 2007 was over 1
year old.[Footnote 11]
VA policy requires that accounts receivable staff include a comment for
any adjustments[Footnote 12] to decrease outstanding third-party bills.
The policy requires that the explanation be clear and unambiguous and
state the particular reason for the adjustment. Our tests of whether
accounts receivable personnel adequately documented reasons for
adjustments to decrease a bill found a failure rate of 38 percent VA-
wide. Without clear documentation of the reasons for billing
adjustments, VA management lacks the ability to monitor the validity of
the adjustments. Further, the lack of follow-up documentation
undermines the reliability of trend information needed to effectively
manage third-party receivables.
Management officials at several of the medical centers tested in our
statistical sample attributed their high follow-up failure rate to
inadequate staffing. However, we found that a lack of management
oversight at the medical centers as well as at the VHA management level
contribute to the control weaknesses we identified. In addition, we
found that VHA and medical centers have few standardized management
reports to facilitate oversight. Similar to the billings process, we
found that the case study medical centers have limited procedures in
place to monitor the collections process. Moreover, uncollected third-
party receivables place an added burden on taxpayers because additional
amounts would need to be covered by annual appropriations to support
the same level of service to veterans.
VA Lacks Policies and Procedures for Assuring Adequate Oversight of
Third-Party Billings and Collections:
In June 2008 we reported that there were no formal policies and
procedures for oversight of the third-party insurer billing and
collection processes by medical centers or VHA. As a result, we found
little or no monitoring and oversight of the third-party billing and
collection processes. This raises concerns about the adequacy of
oversight over the $1.7 billion in unbilled amounts at the 18 case
study medical centers, including the hundreds of millions of dollars in
unbilled amounts related to coding, billing, and documentation errors,
and other undefined reasons. The lack of formal VA policies for
management oversight of third-party billings and collections also
raises VA-wide concerns.
In addition, we found that medical centers and VHA had few standardized
management reports to facilitate oversight. For example, our review of
VHA's Chief Business Office (CBO) reports found that these reports
generally consisted of data on VA-wide days to bill, accounts
receivable, and collections. VHA CBO did not generate detailed
performance reports by medical center, and it did not review data on
the status of unbilled amounts. We noted that limitations in management
reporting related to VHA systems design. Specifically, VA's health care
billing and collection systems operated as stand-alone systems at each
medical center. As such, VA-wide reporting was dependent on numerous
individual queries and data calls. Enhanced oversight would permit VHA
and medical center management to monitor trends and performance
metrics, such as increases or decreases in unbillable amounts.
In summary, while our 2008 report focused on VA underbillings and
related control weaknesses, the weaknesses we identified could also
result in VA overbillings to third-party insurance companies or
veterans. For example, inaccurate data entry could result in bills for
services to veterans for service-connected illnesses or conditions.
Nonetheless, VA has made some progress in improving policy guidance and
processes for billing and collecting medical care receivables from
third-party insurers. In our 2008 report, we noted, but did not assess,
that VA management had undertaken several initiatives to strengthen
processes and controls over third-party billings and collections. For
example, VA had completed initiatives for (1) recruitment and retention
of coders and health information managers and (2) updating VHA policy
guidance related to third-party revenue. In addition, VA had six key
strategic initiatives, including CPAC, under way to enhance revenue
from third-party insurers. Until VA addresses its significant,
continuing weaknesses in controls over coding, billing, and collections
follow-up that prevent it from maximizing revenue from third-party
insurance companies, it will continue to be at risk of millions in
erroneous billings. These errors negatively affect VA's ability to
provide medical care to the nation's veterans.
Our June 2008 report included seven recommendations to VA aimed at
strengthening key internal control activities over third-party billings
and collections and improving management oversight. In comments on a
draft of that report, VA concurred with all seven of our
recommendations and provided information on steps it is taking to
address them. We will follow up to determine whether, and if so, to
what extent VA has taken action to address our recommendations.
Mr. Chairman and Ranking Member Brown, this concludes my prepared
statement. I would be happy to respond to any questions you or other
members of the subcommittee may have at this time.
Contact and Acknowledgments:
For further information about this testimony, please contact Kay L.
Daly, Director, Financial Management and Assurance at (202) 512-9095,
or dalykl@gao.gov. Contact points for our offices of Congressional
Relations and Public Affairs may be found on the last page of this
testimony. Major contributors to this testimony included Gayle L.
Fischer, Assistant Director; Carla J. Lewis, Assistant Director; F. Abe
Dymond, Assistant General Counsel; Carl S. Barden; Deyanna J. Beeler;
Francine DelVecchio; Lauren S. Fassler; Patrick T. Frey; Jason Kelly;
Amanda K. Miller; Meg Mills; Matthew L. Wood; and Matthew P. Zaun.
[End of section]
Footnotes:
[1] The Veterans' Health Care Eligibility Reform Act of 1996, Pub. L.
No. 104-262, § 101, 110 Stat. 3177, 3178 (Oct. 9, 1996) (codified at 38
U.S.C. § 1710) and the Veterans Reconciliation Act of 1997, Pub. L. No.
105-33, tit. VIII, § 8023, 111 Stat. 251, 665 (Aug. 5, 1997) (codified
at 38 U.S.C. §1729A).
[2] VA does not bill for health care services provided to veterans who
have Medicare coverage only or veterans who have no private health
insurance.
[3] VA collections for health care services include third-party
collections as well as patient copayments for medical services.
[4] GAO, VA Health Care: VA Has Not Sufficiently Explored Alternatives
for Optimizing Third-Party Collections, GAO-01-1157T (Washington, D.C.:
Sept. 20, 2001); GAO, VA Health Care: VA Increases Third-Party
Collections as It Addresses Problems in Its Collections Operations, GAO-
03-740T (Washington, D.C.: May 7, 2003); and GAO, VA Medical Centers:
Further Operational Improvements Could Enhance Third-Party Collections,
GAO-04-739 (Washington, D.C.: July 19, 2004).
[5] GAO, VA Health Care: Ineffective Controls over Medical Center
Billings and Collections Limit Revenue from Third-Party Insurance
Companies, GAO-08-675 (Washington, D.C.: June 10, 2008).
[6] One of VA's initiatives to improve billing and collection functions
was the establishment of a CPAC pilot program covering 8 medical
centers. The CPAC model, based on the private-sector approach, consists
of a stand-alone regionalized billing and collections activity
supported by data validation, customer service, and other functions.
[7] Under 38 U.S.C. § 1729, VA is not authorized to collect these
amounts from third-party insurers.
[8] VA Handbook 4800.14, Medical Care Debts, Section 4 (b) (1).
[9] Our statistical tests were based on a 95 percent, 2-sided
confidence interval. Because confidence intervals varied widely for our
various control tests, we used a conservative estimate of our test
results that is based on the lower bound of our confidence intervals.
Our sample included bills over $250.
[10] The stratified random sample population was valued at $547.8
million and VA had collected about $260.1 million as of September 25,
2007.
[11] Specifically, $37.5 million of the total $600 million in
receivables as of the end of fiscal year 2007 was over 1 year old.
[12] Accounts receivable staff reduce third-party receivables for a
variety of reasons including, but not limited to, partial payments when
the amount received is the full amount expected from the insurance
carrier, the amount of payment received is the usual and customary
amount received from the insurance company, or medical services are not
covered under the insurance policy.
[End of section]
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